Nokia Declines 28.7% in Three Months: Should You Buy the Dip?

Nokia Corporation NOK shares have declined 28.7% in the past three months compared with the industry’s decline of 9.3%. The stock has underperformed the Zacks Computer & Technology sector and the S&P 500 during the same time frame.

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The company has underperformed its peers like Arista Networks, Inc. ANET and Ericsson ERIC. Shares of Ericsson have declined 18.2%, and shares of Arista have risen 34.6%.

Nokia Plagued by Stiff Competition, Weakness in the Legacy Business

Nokia operates in highly competitive telecommunications equipment markets. In this market, pricing, technology differentiation and customer procurement decisions influence contract awards and long-term profitability. Ericsson, with its robust portfolio strength, remains a major rival. The company is also facing strong competition from Arista in the growing AI networking market as well. 

Although Nokia continues to strengthen its AI-native networking portfolio and expand relationships with hyperscale cloud providers, competitors are pursuing similar opportunities across 5G, AI infrastructure and future 6G deployments. Maintaining technology leadership while preserving pricing discipline remains essential as customers balance network modernization against capital spending constraints.

Nokia recorded €390 million of restructuring and associated charges in the second quarter of 2026. It is to be noted that Nokia now expects €800 million of restructuring charges in 2026 and €700-800 million of restructuring-related cash outflows. This also includes €350 million of China integration charges and another €200 million from additional restructuring, primarily in Europe. The restructuring should improve efficiency in the long run; this remains a major drag for near-term profitability.

In the Mobile Infrastructure business, Nokia sales increased 7% year over year, but gross margin declined 70 basis points year over year to 49.3%, while operating margin declined 60 basis points to 11.6%. Mobile Infrastructure remains a major revenue earner for the company. Declining profitability, despite growing revenues, is a major concern.

Nokia Benefits From Strength in AI Infrastructure, Portfolio Strength

Nokia continues to benefit from its broad portfolio spanning mobile networks, optical transport, IP routing, fixed broadband, software and services. This integrated offering enables the company to address evolving customer requirements across telecommunications operators, enterprises and hyperscale cloud providers.

Nokia owns approximately 20,000 patents, including around 7,000 patents essential to 5G technologies. Its 5G portfolio continues to gain traction among enterprise customers, supporting recurring opportunities beyond traditional carrier spending cycles.

Network Infrastructure delivered double-digit growth in second-quarter 2026, supported by continued momentum in Optical Networks and IP Networks. Optical Networks business grew 20% year over year in the second quarter, supported by AI & Cloud demand, as well as telecom investment. Nokia is also investing heavily in optical manufacturing capacity, including expanding advanced testing and packaging capacity in Pennsylvania. The company is also developing additional U.S. semiconductor manufacturing capabilities.

Management also increased its expectation for full-year Network Infrastructure sales growth to 12-14%, reflecting continued demand for advanced networking solutions.

Growing investment in AI infrastructure is becoming a more important long-term growth driver for Nokia. During second-quarter 2026, AI and Cloud revenues more than doubled year over year while order intake reached EUR 2.8 billion. Management noted that approximately half of these long-term orders are expected to convert into revenue over the next 12 months.

Estimate Revision Trend

The company’s earnings estimates for 2026 have declined, and 2027 have improved over the past 60 days.

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Key Valuation Metric of NOK

From a valuation standpoint, NOK is currently trading at a discount compared to the industry. Going by the price/earnings ratio, the company’s shares currently trade at 20.03 forward earnings, lower than 29.87 for the industry and above its mean of 18.77.

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End Note

Solid traction in the Optical Networks business and IP networks business, backed by growing AI data center buildout, is the primary growth engine for the company. Comprehensive portfolio strength is a positive factor. However, high restructuring costs, weakness in the legacy telecom business and fierce competition are weighing on the margin. With a Zacks Rank #3 (Hold), Nokia appears to be treading in the middle of the road, and new investors could be better off if they trade with caution. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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This article originally published on Zacks Investment Research (zacks.com).

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